In the IDU report until June 2020, the draft of which has been shared with the government, the World Bank observed that the fiscal impact of the economic stimulus package, though pegged at Rs 20 lakh crore, was limited by way of central government spending.
Three potential risks
The spending was estimated by experts at 0.7-1.2% of GDP in the current financial year.
The finance ministry is believed to have circulated the draft among stakeholder ministries, seeking their responses and comments. The report is expected to be released shortly. Sudip Mozumder, spokesperson for the World Bank’s India’s office, told ET that only an “early draft” had been shared with the government.
“The report is yet to be finalised and is likely to be published in a week or so. The date is not yet final. The numbers are being re-crunched,” said Mozumder, also lead advisor, external affairs, for the World Bank for India, Sri Lanka and Bangladesh.
While recognising the relief that government interventions can provide, the Bank identified three potential risks – if lockdown measures are extended and mobility remained “significantly constrained” over the second quarter (July-September); additional strains on the financial sector; and further deterioration of the global outlook.
India may see a reversal of gains made between 2011 and 2015 when the poverty rate dropped from 21.6% to 13.4%, based on the international poverty line.
“Preliminary analysis following the national Covid-19 lockdown suggests that these gains will be eroded… India is at risk of losing its hard-won gains against poverty, and pre-existing inequalities will widen,” it said, adding that nearly half of India’s population was vulnerable with “consumption levels precariously close” to the poverty line.
“These households are likely to slip back into poverty due to income and job losses triggered by Covid-19,” the draft noted while also emphasising the vulnerabilities of 90% of India’s workforce in the informal sector. “These workers are at risk of falling into poverty due to wage and livelihood losses triggered by shrinking economic activity, government-imposed closures and social distancing protocols. Migrants face the deepest risks due to a static social protection system in India, inter-state migrants are at acute risk of increased poverty and destitution.”
On the economic front, the draft IDU said the Indian economy will contract in FY21 by over 3% and that the rebound will be “muted” in FY22.